On Thursday, they bounced back, climbing $12 to settle at $1,726 an ounce but that’s not quite the Obama win-induced rally the market was expecting. Prices are still stuck in the $120 or so trading range they’ve been in since late August.

“The dust is still settling after the U.S. election,” said Ben Traynor, chief economist at BullionVault, a physical gold and silver market for private investors online. “Despite all the hoopla surrounding the election, nothing of substance has changed.”

And “the focus has started to shift towards the fiscal cliff,” he said.

Before the election results, many investors bet on a win by Obama, bidding up the gold price by nearly $32 an ounce Tuesday, on assumptions that the Federal Reserve will continue its policy of monetary easing during the president’s second term. Compared to that rally, enthusiasm has quieted down, but that probably won’t last for long.

With the election over, investors can focus on other issues, such as the so-called fiscal cliff, a combination of tax hikes and spending cuts that will come into effect on Jan. 1 unless politicians reach a budget deal.

“With the fiscal cliff approaching fast, an entire new group of investors will be pouring into the precious metals in anticipation of the grim fact that the U.S. is going to try and print itself out of debt,” said David Morgan, publisher of The Morgan Report, a newsletter on precious-metals investing.

“The fiscal-cliff debate will be a factor [for gold], but so too will events elsewhere,” such as in Europe, according to Traynor.

“For all its economic significance, the fiscal cliff is at heart a political issue, one that revolves around whether politicians [...] can reach a temporary agreement,” he said. “Europe’s problems go much deeper than that.”

In Europe, the big question is whether the euro-zone debt crisis may push the fragile global economy back into recession, according to Paul Herber, portfolio manager of the Forward Commodity Long/Short Strategy Fund
US:FCOMX
“Panic in Europe would also see an increase in gold prices as investors seek the safety of a stable store of value,” he said.

So, at least for now, most of the factors in the gold market point to higher prices in the months to come.

“Now, with the certainty of the election results and four years of economic and monetary policy similar to the past four, higher gold prices seem both inevitable and imminent,” said Brien Lundin, editor of Gold Newsletter.

To date, gold futures have climbed around 9% for the year, but fallen nearly 3% for the quarter.

The U.S. dollar
DXY, +0.37%
is key in the outlook for gold, as the two tend to have an inverse relationship. When the dollar rises, gold tends to drop.

“If the European bonfire flares up once again, the resulting risk-off mania would send investors fleeing to the dollar, which would temporarily derail gold,” said Lundin. “Given the longer-term prospects for more quantitative easing in the U.S. and Europe, however, investors and countries with a longer view would buy gold on the resulting dips,” he said.

With an Obama win, more regulation and higher environmental standards are also a possibility as gold exploration and production increases in the United States, said Malcolm Gissen, co-manager of the Encompass Fund
US:ENCPX
That would delay supply of gold and add to its cost.

‘Patience and fortitude’

After the election, the fiscal cliff is the biggest near-term issue that Washington needs to resolve. How the government deals with it can have both bullish and bearish effects on gold prices.

Investors are waiting to see whether President Obama can work with a Congress that remains divided, said Herber of the Forward Commodity Long/Short Strategy Fund. Republicans kept control of the House of Representatives, while Democrats retained control of the Senate.

“Going headlong off the [fiscal] cliff risks a U.S. recession and a flight to safety which will likely drive gold higher,” Herber said.

On the other hand, “if the U.S. government is able to compromise and avoid the fiscal cliff, the U.S. should continue to exhibit a stronger economic recovery than other developed markets such as Europe and Japan,” he said. And “investors should see a strengthening of the U.S. dollar depressing the price of gold.”

So what’s a precious-metals investor to do following Obama’s win?

‘The world is so full of possibilities for scaring the hell out of investors and triggering a rise in gold prices that it is likely that such an event will occur within the next nine months.’
Malcolm Gissen, Encompass Fund.

“Wait for any initial reaction to subside,” said Jeb Handwerger, a natural-resource analyst and editor of GoldStockTrades.com.

Given the gold market’s post-election moves, “patience and fortitude” might be a good mantra to follow, according to Handwerger.

That’s not to say that the long-term view on the precious metal has necessarily changed. “The world is so full of possibilities for scaring the hell out of investors and triggering a rise in gold prices that it is likely that such an event will occur within the next nine months,” said Gissen.

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